new mexico...3. mortgage loans on real estate: 3.1 first liens 3.2 other than first liens 4. real...

QUARTERLY STATEMENT

OF THE

LOVELACE HEALTH SYSTEM, INC.

OF

ALBUQUERQUE

IN THE STATE OF

NEW MEXICO

TO THE

INSURANCE DEPARTMENT

OF THE

STATE OF NEW MEXICO

FOR THE QUARTER ENDED June 30, 2017

2017 Health

2017

Lovelace Health System, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Statement as of June 30, 2017 of the

ASSETSCurrent Statement Date

1 2 3 4

Net Admitted December 31Nonadmitted Assets Prior Year Net

Assets Assets (Cols. 1 - 2) Admitted Assets

1. Bonds 300,059 300,059 300,4132. Stocks:

2.1 Preferred stocks2.2 Common stocks 6,427,296 6,427,296 6,315,909

3. Mortgage loans on real estate:3.1 First liens3.2 Other than first liens

4. Real estate:4.1 0. . . . . . . . . . .Properties occupied by the company (less $ encumbrances)4.2 0. . . . . . . . . . .Properties held for the production of income (less $ encumbrances)4.3 0. . . . . . . . . . .Properties held for sale (less $ encumbrances)

5. 24,539,309. . . . . . . . . . . 0. . . . . . . . . . .Cash ($ ), cash equivalents ($ ), and short-term0. . . . . . . . . . .investments ($ ) 24,539,309 24,539,309 26,370,192

6. 0. . . . . . . . . . .Contract loans (including $ premium notes)7. Derivatives8. Other invested assets 4,802,108 4,802,108 4,300,0009. Receivables for securities

10. Securities lending reinvested collateral assets11. Aggregate write-ins for invested assets12. Subtotals, cash and invested assets (Lines 1 to 11) 36,068,772 36,068,772 37,286,51413. 0. . . . . . . . . . .Title plants less $ charged off (for Title insurers only)14. Investment income due and accrued15. Premiums and considerations:

15.1 Uncollected premiums and agents' balances in the course of collection15.2 Deferred premiums, agents' balances and installments booked but deferred

0. . . . . . . . . . .and not yet due (including $ earned but unbilled premiums)15.3 0. . . . . . . . . . .Accrued retrospective premiums ($ ) and contracts

0. . . . . . . . . . .subject to redetermination ($ )16. Reinsurance:

16.1 Amounts recoverable from reinsurers16.2 Funds held by or deposited with reinsured companies16.3 Other amounts receivable under reinsurance contracts

17. Amounts receivable relating to uninsured plans18.1 Current federal and foreign income tax recoverable and interest thereon18.2 Net deferred tax asset 17,860,443 8,600,802 9,259,641 11,084,904

19. Guaranty funds receivable or on deposit20. Electronic data processing equipment and software 4,806,118 2,934,596 1,871,522 1,225,66221. 14,572,494. . . . . . . . . . .Furniture and equipment, including health care delivery assets ($ ) 29,002,593 2,706,868 26,295,725 28,110,43422. Net adjustment in assets and liabilities due to foreign exchange rates23. Receivables from parent, subsidiaries and affiliates 4,632,484 4,632,484 533,24824. 63,022,327. . . . . . . . . . .Health care ($ ) and other amounts receivable 69,255,304 6,232,977 63,022,327 69,144,35525. Aggregate write-ins for other than invested assets 3,458,516 3,458,51626. Total assets excluding Separate Accounts, Segregated Accounts and

Protected Cell Accounts (Lines 12 to 25) 165,084,230 23,933,759 141,150,471 147,385,11727. From Separate Accounts, Segregated Accounts and Protected Cell Accounts28. Total (Lines 26 and 27) 165,084,230 23,933,759 141,150,471 147,385,117

DETAILS OF WRITE-IN LINES

1101.1102.1103.1198. Summary of remaining write-ins for Line 11 from overflow page1199. Totals (Lines 1101 through 1103 plus 1198) (Line 11 above)2501. Other assets non-admitted 3,071,769 3,071,7692502. Prepaid expenses 336,428 336,4282503. Capital lease 50,319 50,3192598. Summary of remaining write-ins for Line 25 from overflow page2599. Totals (Lines 2501 through 2503 plus 2598) (Line 25 above) 3,458,516 3,458,516

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See independent accountant's compilation report.


LIABILITIES, CAPITAL AND SURPLUSCurrent Period Prior Year

1 2 3 4Covered Uncovered Total Total

1. 0. . . . . . . . . . .Claims unpaid (less $ reinsurance ceded) (18,484) (18,484) 63,2092. Accrued medical incentive pool and bonus amounts3. Unpaid claims adjustment expenses 1,8004. 0. . . . . . . . . . .Aggregate health policy reserves, including the liability of $ for medical

loss ratio rebate per the Public Health Service Act5. Aggregate life policy reserves6. Property/casualty unearned premium reserve7. Aggregate health claim reserves8. Premiums received in advance9. General expenses due or accrued 41,261,350 41,261,350 40,493,478

10.1 Current federal and foreign income tax payable and interest thereon0. . . . . . . . . . .(including $ on realized gains (losses)) 3,926,225 3,926,225

10.2 Net deferred tax liability11. Ceded reinsurance premiums payable12. Amounts withheld or retained for the account of others 5,061,277 5,061,277 6,830,17713. Remittances and items not allocated14. 0. . . . . . . . . . .Borrowed money (including $ current) and interest

0. . . . . . . . . . . 0. . . . . . . . . . .thereon $ (including $ current)15. Amounts due to parent, subsidiaries and affiliates16. Derivatives17. Payable for securities18. Payable for securities lending19. 0. . . . . . . . . . .Funds held under reinsurance treaties (with $ authorized reinsurers,

0. . . . . . . . . . . 0. . . . . . . . . . . $ unauthorized reinsurers, and $ certified reinsurers)20. 0. . . . . . . . . . .Reinsurance in unauthorized and certified ($ ) companies21. Net adjustments in assets and liabilities due to foreign exchange rates22. Liability for amounts held under uninsured plans23. 0. . . . . . . . . . .Aggregate write-ins for other liabilities (including $ current) 9,313,404 9,313,404 7,458,78624. Total liabilities (Lines 1 to 23) 59,543,772 59,543,772 54,847,45025. Aggregate write-ins for special surplus funds X X X X X X26. Common capital stock X X X X X X 6,762 6,76227. Preferred capital stock X X X X X X28. Gross paid in and contributed surplus X X X X X X 61,413,682 65,376,27929. Surplus notes X X X X X X30. Aggregate write-ins for other than special surplus funds X X X X X X31. Unassigned funds (surplus) X X X X X X 20,186,255 27,154,62632. Less treasury stock, at cost:

32.1 0. . . . . . . . . . . 0. . . . . . . . . . . shares common (value included in Line 26 $ ) X X X X X X32.2 0. . . . . . . . . . . 0. . . . . . . . . . . shares preferred (value included in Line 27 $ ) X X X X X X

33. Total capital and surplus (Lines 25 to 31 minus Line 32) X X X X X X 81,606,699 92,537,66734. Total liabilities, capital and surplus (Lines 24 and 33) X X X X X X 141,150,471 147,385,117

DETAILS OF WRITE-IN LINES2301. Third party settlements 4,959,601 4,959,601 6,906,4172302. Other liability - UNM Rehab Joint Venture 3,774,000 3,774,0002303. Unclaimed checks 518,040 518,040 475,7132398. Summary of remaining write-ins for Line 23 from overflow page 61,763 61,763 76,6562399. Totals (Lines 2301 through 2303 plus 2398) (Line 23 above) 9,313,404 9,313,404 7,458,7862501. X X X X X X2502. X X X X X X2503. X X X X X X2598. Summary of remaining write-ins for Line 25 from overflow page X X X X X X2599. Totals (Lines 2501 through 2503 plus 2598) (Line 25 above) X X X X X X3001. X X X X X X3002. X X X X X X3003. X X X X X X3098. Summary of remaining write-ins for Line 30 from overflow page X X X X X X3099. Totals (Lines 3001 through 3003 plus 3098) (Line 30 above) X X X X X X

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STATEMENT OF REVENUE AND EXPENSESCurrent Year Prior Year Prior Year Ended

To Date To Date December 311 2 3 4

Uncovered Total Total Total

1. Member Months X X X2. 0. . . . . . . . . . .Net premium income (including $ non-health premium income) X X X3. Change in unearned premium reserves and reserve for rate credits X X X4. 242,544,563. . . . . . . . . . .Fee-for-service (net of $ medical expenses) X X X 59,246,893 50,730,209 107,437,5885. Risk revenue X X X6. Aggregate write-ins for other health care related revenues X X X7. Aggregate write-ins for other non-health revenues X X X8. Total revenues (Lines 2 to 7) X X X 59,246,893 50,730,209 107,437,588

Hospital and Medical:

9. Hospital/medical benefits (204,012) (436,476) (658,183)10. Other professional services11. Outside referrals12. Emergency room and out-of-area13. Prescription drugs14. Aggregate write-ins for other hospital and medical15. Incentive pool, withhold adjustments and bonus amounts16. Subtotal (Lines 9 to 15) (204,012) (436,476) (658,183)

Less:

17. Net reinsurance recoveries18. Total hospital and medical (Lines 16 minus 17) (204,012) (436,476) (658,183)19. Non-health claims (net)20. 0. . . . . . . . . . .Claims adjustment expenses, including $ cost containment expenses21. General administrative expenses 39,601,315 42,356,210 84,317,35522. Increase in reserves for life and accident and health contracts (including

0. . . . . . . . . . .$ increase in reserves for life only)23. Total underwriting deductions (Lines 18 through 22) 39,397,303 41,919,734 83,659,17224. Net underwriting gain or (loss) (Lines 8 minus 23) X X X 19,849,590 8,810,475 23,778,41625. Net investment income earned (24,325) (148,285) (128,744)26. 0. . . . . . . . . . .Net realized capital gains (losses) less capital gains tax of $ 27. Net investment gains (losses) (Lines 25 plus 26) (24,325) (148,285) (128,744)28. Net gain or (loss) from agents' or premium balances charged off [ (amount

0. . . . . . . . . . . 0. . . . . . . . . . .recovered $ ) (amount charged off $ ) ]29. Aggregate write-ins for other income or expenses (29,549) 71,537 (80,364)30. Net income or (loss) after capital gains tax and before all other federal income taxes

(Lines 24 plus 27 plus 28 plus 29) X X X 19,795,716 8,733,727 23,569,30831. Federal and foreign income taxes incurred X X X 7,661,790 4,745,241 8,181,44332. Net income (loss) (Lines 30 minus 31) X X X 12,133,926 3,988,486 15,387,865


0601. X X X0602. X X X0603. X X X0698. Summary of remaining write-ins for Line 06 from overflow page X X X0699. Totals (Lines 0601 through 0603 plus 0698) (Line 06 above) X X X

0701. X X X0702. X X X0703. X X X0798. Summary of remaining write-ins for Line 07 from overflow page X X X0799. Totals (Lines 0701 through 0703 plus 0798) (Line 07 above) X X X

1401.1402.1403.1498. Summary of remaining write-ins for Line 14 from overflow page1499. Totals (Lines 1401 through 1403 plus 1498) (Line 14 above)

2901. Gain (loss) on sale of Pharmacy assets and operations- Note 21 (80,364)2902. Gain (loss) on sale of fixed assets (29,549) 71,5372903.2998. Summary of remaining write-ins for Line 29 from overflow page2999. Totals (Lines 2901 through 2903 plus 2998) (Line 29 above) (29,549) 71,537 (80,364)

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STATEMENT OF REVENUE AND EXPENSES (Continued)1 2 3

Current Year Prior Year Prior Year EndedTo Date To Date December 31

CAPITAL & SURPLUS ACCOUNT

33. Capital and surplus prior reporting year 92,537,667 78,737,275 78,737,27534. Net income or (loss) from Line 32 12,133,926 3,988,486 15,387,86535. Change in valuation basis of aggregate policy and claim reserves36. 0. . . . . . . . . . .Change in net unrealized capital gains (losses) less capital gains tax of $ 111,357 117,280 218,25837. Change in net unrealized foreign exchange capital gain or (loss)38. Change in net deferred income tax 851,418 1,547,023 1,355,08939. Change in nonadmitted assets (3,100,788) 2,601,984 (125,104)40. Change in unauthorized and certified reinsurance41. Change in treasury stock42. Change in surplus notes43. Cumulative effect of changes in accounting principles44. Capital Changes:

44.1 Paid in44.2 Transferred from surplus (Stock Dividend)44.3 Transferred to surplus

45. Surplus adjustments:45.1 Paid in45.2 Transferred to capital (Stock Dividend)45.3 Transferred from capital

46. Dividends to stockholders (20,000,000)47. Aggregate write-ins for gains or (losses) in surplus (926,881) (3,035,716)48. Net change in capital and surplus (Lines 34 to 47) (10,930,968) 8,254,773 13,800,39249. Capital and surplus end of reporting period (Line 33 plus 48) 81,606,699 86,992,048 92,537,667


4701. Goodwill purchase adjustment excluded pursuant to NM Insurance Code Chapter 59A-8-2 (926,881) (3,035,716)4702.4703.4798. Summary of remaining write-ins for Line 47 from overflow page4799. Totals (Lines 4701 through 4703 plus 4798) (Line 47 above) (926,881) (3,035,716)

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CASH FLOW1 2 3

Cash from Operations Current Year Prior Year Prior YearTo Date To Date Ended December 31

1. Premiums collected net of reinsurance2. Net investment income (23,971) (148,285) (128,566)3. Miscellaneous income 62,233,375 53,296,380 112,961,1734. Total (Lines 1 to 3) 62,209,404 53,148,095 112,832,6075. Benefit and loss related payments (6,785,424) 6,330,471 8,623,3296. Net transfers to Separate Accounts, Segregated Accounts and Protected Cell Accounts7. Commissions, expenses paid and aggregate write-ins for deductions 37,777,238 42,763,381 89,531,5778. Dividends paid to policyholders9. 0. . . . . . . . . .Federal and foreign income taxes paid (recovered) net of $ tax on capital gains (losses) 3,735,565 4,745,241 8,181,443

10. Total (Lines 5 through 9) 34,727,379 53,839,093 106,336,34911. Net cash from operations (Line 4 minus Line 10) 27,482,025 (690,998) 6,496,258

Cash from Investments12. Proceeds from investments sold, matured or repaid:

12.1 Bonds12.2 Stocks12.3 Mortgage loans12.4 Real estate12.5 Other invested assets12.6 Net gains (or losses) on cash, cash equivalents and short-term investments12.7 Miscellaneous proceeds12.8 Total investment proceeds (Lines 12.1 to 12.7)

13. Cost of investments acquired (long-term only):13.1 Bonds 300,59113.2 Stocks13.3 Mortgage loans13.4 Real estate13.5 Other invested assets 4,300,00013.6 Miscellaneous applications13.7 Total investments acquired (Lines 13.1 to 13.6) 4,600,591

14. Net increase (or decrease) in contract loans and premium notes15. Net cash from investments (Line 12.8 minus Line 13.7 and Line 14) (4,600,591)

Cash from Financing and Miscellaneous Sources16. Cash provided (applied):

16.1 Surplus notes, capital notes16.2 Capital and paid in surplus, less treasury stock16.3 Borrowed funds16.4 Net deposits on deposit-type contracts and other insurance liabilities16.5 Dividends to stockholders 20,000,00016.6 Other cash provided (applied) (9,312,908) 201,812 (6,425,652)

17. Net cash from financing and miscellaneous sources (Line 16.1 through Line 16.4 minusLine 16.5 plus Line 16.6) (29,312,908) 201,812 (6,425,652)

RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS18. Net change in cash, cash equivalents and short-term investments (Line 11, plus Lines 15 and 17) (1,830,883) (489,186) (4,529,985)19. Cash, cash equivalents and short-term investments:

19.1 Beginning of year 26,370,192 30,900,177 30,900,17719.2 End of period (Line 18 plus Line 19.1) 24,539,309 30,410,991 26,370,192

Note: Supplemental disclosures of cash flow information for non-cash transactions:

20.0001 Goodwill purchase adjustment excluded pursuant to NM Insurance Code Chapter 59A-8-2 (926,881) (3,035,716)20.000220.0003

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Love

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State

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1. Summary of Significant Accounting Policies

a. Accounting Practices The accompanying financial statements of Lovelace Health System, Inc. (the Company) have been prepared in accordance with the financial reporting provisions of the State of New Mexico Office of Superintendent of Insurance (OSI). These provisions (herein referred to as SAP) include the statutory accounting practices promulgated by the National Association of Insurance Commissioners (NAIC), as codified in the Accounting Practices and Procedures Manual and as supplemented by the "Annual Statement Instructions", except as modified by any special accounting practices prescribed or permitted by the state of New Mexico insurance laws and regulations that are applicable to the Company. The state has adopted the following prescribed accounting practice that differs from that found in NAIC SAP: Goodwill arising from the purchase of a subsidiary, controlled or affiliated entity is written off directly to surplus in the year it originates. In NAIC SAP, goodwill amounts not to exceed 10% of an insurer's adjusted capital and surplus, as defined, may be admitted and all amounts of goodwill are amortized over periods not to exceed ten years. At June 30, 2017, the Company's goodwill amounts were as follows:

(1) (2) (3) [(2)-(3)] Generally NAIC New Mexico Variance Accepted Statutory Prescribed Between Accounting Accounting Accounting New Mexico Principles Practices Practices & NAIC

Heart Hospital of New Mexico acquisition, August 1, 2011 $ 88,046,836 $ 35,952,458 $ 0 $ 35,952,458 Roswell Hospital acquisition, February 1, 2012 11,175,595 5,122,148 0 5,122,148

Total $ 99,222,431 $ 41,074,606 $ 0 $ 41,074,606 Non-admitted ( 34,719,414) 0 ( 34,719,414)

Admitted $ 6,355,192 $ 0 $ 6,355,192

A reconciliation of the Company’s net income and capital and surplus between NAIC SAP and practices prescribed and permitted by the State of New Mexico is shown below:

State of June 30 December 31

Domicile SSAP # F/S Page F/S Line # 2017 2016

NET INCOME

(1) Lovelace Health System, Inc. Company state basis (Page 4, Line 32, Columns 2 & 3) NM XXX XXX XXX 12,133,926$ 15,387,865$

(2) State Prescribed Practices that increase (decrease) NAIC SAP: Goodwill amortization, net of 35% tax NM 68 4 21 2,948,595 6,085,046

(3) State Permitted Practices that increase (decrease) NAIC SAP NM 0 0

(4) NAIC SAP...................(1 - 2 - 3 = 4) XXX XXX XXX 9,185,331$ 9,302,819$

June 30 December 31

2017 2016

SURPLUS

(5) Lovelace Health System, Inc. state basis (Page 3, Line 33, Columns 3 & 4) NM XXX XXX XXX 81,606,699$ 92,537,667$

(6)State Prescribed Practices that increase (decrease) NAIC SAP: Goodwill, net

NM 68 2 4 (6,355,191) (7,747,495)

(7) State Permitted Practices that increase (decrease) NAIC SAP NM 0 0

(8) NAIC SAP...................(5 - 6 - 7 = 8) XXX XXX XXX 87,961,890$ 100,285,162$

b. Use of Estimates in the Preparation of the Financial Statements No significant change

c. Accounting Policy

7. Investments in Subsidiaries, Controlled and Affiliated Entities

Investment in LHS Services, Inc.

On January 9, 2008, Lovelace Health System, Inc. (“LHS”) invested $3.0 million in the equity of LHS Services, Inc. (“LSI”), a non insurance affiliate, and entered into a $9.6 million intercompany note receivable due from LSI. The equity contribution and loan by LHS were used to purchase a $12.6 million bond issued by the New Mexico Hospital Equipment Loan Council (“NMHELC”). The bond was issued on behalf of LHS to fund the Lovelace Women’s Hospital capital renovation project. The investment in LSI is carried at its GAAP equity and is reflected in common stocks in the balance sheet.


NOTES TO FINANCIAL STATEMENTS

10See independent accountant's compilation report.

On August 1, 2011, LHS made a loan of $32.8 million to LSI and entered into a $32.8 million intercompany note receivable due from LSI. The loan to LSI was used to purchase a bond of the same amount issued by the NMHELC. The bond was issued on behalf of LHS to fund the purchase of the Heart Hospital’s real estate and real property. (Refer to Note 21 for additional information regarding the divestiture of the Company's real estate on July 31, 2015.) On December 20, 2012, LHS made a loan of approximately $26.2 million to LSI and entered into a $26.2 million intercompany note receivable due from LSI. The loan to LSI was used to purchase a bond of the same amount issued by the NMHELC. The bond was issued on behalf of LHS to fund the purchase of the Roswell Hospital’s real estate and real property. (Refer to Note 21 for additional information regarding the divestiture of the Company's real estate on July 31, 2015.)

Investment in LHS Services, Inc. - Continued A summary of these transactions are as follows:

Industrial Revenue Bond (“IRB”) Date Receivable from LSI Payable for bond Women’s Hospital IRB 01/09/2008 $0.9 million $1.2 million Heart Hospital IRB 08/01/2011 $7.9 million $10.0 million Roswell Hospital IRB 12/20/2012 $2.8 million $3.5 million

Below is a summary of the effect that these IRB transactions have on LHS’ financial statements:

Balance Sheet Presentation:

June 30 December 31

2017 2016 Due to/from Parents, Subsidiaries, and Affiliates (“PSA”)

Intercompany Note Loan Receivable $ 11,636,740 $ 11,636,740 Intercompany Note Payable IRB (14,636,740) (14,636,740)

Net amount included in Receivable/Payable to PSA $ (3,000,000) $ (3,000,000)

Common Stocks: Investment in LSI $ 6,427,266 $ 6,315,909 Income Statement Presentation:

June 30 December 31 2017 2016

Interest Income on receivable from LSI $ 330,032 $ 667,357 Interest expense on IRB bond 512,285 1,024,571

Net Interest expense in Net Investment Income 182,253 357,214 Federal income taxes incurred (70,896) (138,956)

Net of federal income taxes incurred 111,357 218,258

Change in unrealized gain on investment in LSI 111,357 218,258

Net impact to capital and surplus $ 0 $ 0

8. Joint Ventures: On May 1, 2017, the Company entered into a transaction to form a joint venture with University of New Mexico ("UNM") Medical Group. The new entity formed is named Lovelace UNM Rehabilitation Hospital. The aggregate contributed capital, comprised of cash and fixed assets, was valued at approximately $12.6 million. The Company has a 51% ownership interest and UNM Medical Group has a 49% ownership interest in the newly formed joint venture. This transaction was approved by the NM OSI on February 14, 2017.

d. Going Concern: No significant change

2. Accounting Changes and Corrections of Errors No significant change

3. Business Combinations and Goodwill No significant change 4. Discontinued Operations No significant change 5. Investments

a. Mortgage Loans: None b. Debt Restructuring: None c. Reverse Mortgages: None d. Loan -Backed Securities: None e. Repurchase Agreements: None f. Real Estate:

1. Impairment Losses: None

2. Real estate sold or held for sale: See Note 21 regarding the divestiture ("sale") of the Company's real estate holdings to its parent through a common capital stock repurchase during 2015.



10.1See independent accountant's compilation report.

3. Changes to a plan of real estate sale: None 4. Retail land sales operations: None

5. Participating mortgage loan features: None

g. Investments in Low-Income Housing Tax Credits (LIHTC): None h. Restricted Assets: No significant change

i. Working Capital Finance Investments: None j. Offsetting and Netting of Assets and Liabilities: None k. Structured Notes: None

6. Joint Ventures, Partnerships and Limited Liability Companies Refer to Note 1(c)(8) for additional information regarding a joint venture the Company entered into on May 1, 2017.

7. Investment Income No significant change

8. Derivative Instruments

None 9. Income Taxes

a. The components of the net DTA recognized in the Company’s Assets, Liabilities, Surplus and Other Funds are as follows:

1. Net Admitted Deferred Tax Asset (Liability) Summary

(1) (2) (3)

(Col 1 + 2)Ordinary Capital Total

(a) Gross Deferred Tax Assets 20,559,018$ 0$ 20,559,018$ (b) Statutory Valuation Allowance Adjustment 0 0 0(c) Adjusted Gross Deferred Tax Assets (1a-1b) 20,559,018 0 20,559,018(d) Deferred Tax Assets Nonadmitted 8,600,802 0 8,600,802(e) Subtotal Net Admitted Deferred Tax Assets (1c-d) 11,958,216 0 11,958,216(f) Deferred Tax Liabilities 2,698,575 0 2,698,575(g) Net Admitted Deferred Tax Asset/

(Net Deferred Tax Liability) (1e-1f) 9,259,641$ 0$ 9,259,641$

(4) (5) (6)


(a) Gross Deferred Tax Assets 20,226,118$ 0$ 20,226,118$ (b) Statutory Valuation Allowance Adjustment 0 0 0(c) Adjusted Gross Deferred Tax Assets (1a-1b) 20,226,118 0 20,226,118(d) Deferred Tax Assets Nonadmitted 5,924,121 0 5,924,121(e) Subtotal Net Admitted Deferred Tax Assets (1c-d) 14,301,997 0 14,301,997(f) Deferred Tax Liabilities 3,217,093 0 3,217,093(g) Net Admitted Deferred Tax Asset/

(Net Deferred Tax Liability) (1e-1f) 11,084,904$ 0$ 11,084,904$

(7) (8) (9)

(Col 1 - 4) (Col 2 - 5) (Col 7 + 8)Ordinary Capital Total

(a) Gross Deferred Tax Assets 332,900$ 0$ 332,900$ (b) Statutory Valuation Allowance Adjustment 0 0 0(c) Adjusted Gross Deferred Tax Assets (1a-1b) 332,900 0 332,900(d) Deferred Tax Assets Nonadmitted 2,676,681 0 2,676,681(e) Subtotal Net Admitted Deferred Tax Assets (1c-d) (2,343,781) 0 (2,343,781)(f) Deferred Tax Liabilities (518,518) 0 (518,518)(g) Net Admitted Deferred Tax Asset/

(Net Deferred Tax Liability) (1e-1f) (1,825,263)$ 0$ (1,825,263)$

6/30/2017

12/31/2016

Change




2. Admission Calculation Components SSAP No. 101

(1) (2) (3)


(a) Federal Income Taxes Paid In Prior YearsRecoverable Through Loss Carrybacks. 9,259,641$ 0$ 9,259,641$

(b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding the Amount ofDeferred Tax Assets from 2 (a) above) AfterApplication of the Threshold Limitation. (the Lesser of 2(b)1 and 2(b)2 Below.) 0 0 0

1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date. 0 0 0 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold. XXX XXX 10,571,330

(c) Adjusted Gross Deferred Tax Assets(Excluding the Amount of Deferred TaxAssets from 2(a) and 2(b) above) Offsetby Gross Deferred Tax Liabilities. 2,698,575 0 2,698,575

(d) Deferred Tax Assets Admitted as the resultof application of SSAP No. 101. Total(2(a) + 2(b) + 2(c)) 11,958,216$ 0$ 11,958,216$

(4) (5) (6)


(a) Federal Income Taxes Paid In Prior YearsRecoverable Through Loss Carrybacks. 10,279,269$ 0$ 10,279,269$

(b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding the Amount ofDeferred Tax Assets from 2 (a) above) AfterApplication of the Threshold Limitation. (the Lesser of 2(b)1 and 2(b)2 Below.) 805,634 0 805,634

1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date. 0 0 0 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold. XXX XXX 12,034,065

(c) Adjusted Gross Deferred Tax Assets(Excluding the Amount of Deferred TaxAssets from 2(a) and 2(b) above) Offsetby Gross Deferred Tax Liabilities. 3,217,094 0 3,217,094

(d) Deferred Tax Assets Admitted as the resultof application of SSAP No. 101. Total(2(a) + 2(b) + 2(c)) 14,301,997$ 0$ 14,301,997$

(7) (8) (9)

(Col 1 - 4) (Col 2 - 5) (Col 7 + 8)Ordinary Capital Total

(a) Federal Income Taxes Paid In Prior YearsRecoverable Through Loss Carrybacks. (1,019,628)$ 0$ (1,019,628)$

(b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding the Amount ofDeferred Tax Assets from 2 (a) above) AfterApplication of the Threshold Limitation. (the Lesser of 2(b)1 and 2(b)2 Below.) (805,634) 0 (805,634)

1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date. 0 0 0 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold. XXX XXX (1,462,735)

.(c) Adjusted Gross Deferred Tax Assets

(Excluding the Amount of Deferred TaxAssets from 2(a) and 2(b) above) Offsetby Gross Deferred Tax Liabilities. (518,519) 0 (518,519)

(d) Deferred Tax Assets Admitted as the resultof application of SSAP No. 101. Total(2(a) + 2(b) + 2(c)) (2,343,781)$ 0$ (2,343,781)$

Change

6/30/2017

12/31/2016




3. ExDTA Threshold Limitation Components

2017 2016

(a) Ratio Percentage Used to Determine Recovery Period and ThresholdLimitation Amount. 1012% 1139%

(b) Amount of Adjusted Capital and SurplusUsed to Determine Recovery Periodand Threshold Limitation in 2 (b) 2 Above. 72,347,058$ 81,452,763$

4. The Impact of Tax Planning Strategies

(1) (2)

Ordinary Capital

(a) Determination Of Adjusted Gross DeferredTax Assets and Net Admitted Deferred TaxAssets, By Tax Character, As A Percentage.

1. Adjusted Gross DTAs Amount From Note 9A1(c) 20,559,018$ 0$ 2. Percentage of Adjusted Gross DTAs By Tax

Character Attributable To The Impact of TaxPlanning Strategies 0% 0%

3. Net Admitted Adjusted Gross DTAs AmountFrom 9A1(e) 11,958,216$ 0$

4. Percentage of Net Admitted Adjusted GrossDTAs By Tax Character Admitted Because OfThe Impact Of Tax Planning Strategies 0% 0%

(3) (4)

Ordinary Capital


1. Adjusted Gross DTAs Amount From Note 9A1(c) 20,226,118$ 0$ 2. Percentage of Adjusted Gross DTAs By Tax


3. Net Admitted Adjusted Gross DTAs AmountFrom 9A1(e) 14,301,997$ 0$


(5) (6)

(Col 1-3) (Col 2-4)Ordinary Capital


1. Adjusted Gross DTAs Amount From Note 9A1(c) 332,900$ 0$ 2. Percentage of Adjusted Gross DTAs By Tax


3. Net Admitted Adjusted Gross DTAs AmountFrom 9A1(e) (2,343,781)$ 0$


Change

6/30/2017

12/31/2016

(b) The Company has no tax planning strategies that include the use of reinsurance.

b. Deferred tax liabilities that are not recognized - There were no unrecognized DTLs as of June 30, 2017 or December 31, 2016.




c. Current income taxes incurred consist of the following major components:

(1) (2) (3)(Col 1 - 2)

6/30/2017 12/31/2016 Change

1. Current Income Tax

(a) Federal 7,661,790$ 8,181,443$ (519,653)$ (b) Foreign 0 0 0(c) Subtotal 7,661,790 8,181,443 (519,653)(d) Federal income tax on net capital gains 0 0 0(e) Utilization of capital loss carry-forwards 0 0 0(f) Other - Prior period true-up adjustment 0 0 0(g) Federal and foreign income taxes incurred 7,661,790$ 8,181,443$ (519,653)$

(1) (2) (3)

(Col 1 - 2)6/30/2017 12/31/2016 Change

2. Deferred Tax Assets:

(a) Ordinary

(1) Discounting of unpaid losses 0$ 0$ 0$ (2) Unearned premium reserve 0 0 0(3) Policyholder reserves 0 0 0(4) Investments 0 0 0(5) Deferred acquisition costs 0 0 0(6) Policyholder dividends accrual 0 0 0(7) Fixed assets 6,538,636 5,477,637 1,060,999(8) Compensation and benefits accrual 3,010,105 2,638,486 371,619(9) Pension accrual 0 0 0(10) Receivables--nonadmitted 2,181,542 2,370,929 (189,387)(11) Net operating loss carry-forward 0 0 0(12) Tax credit carry-forward 0 0 0(13.1) Bad debts 0 3,876,155 (3,876,155)(13.2) Intangibles 0 0 0(13.3) Accrued expenses 5,793,934 4,394,877 1,399,057(13.4) Prepaid expenses 1,075,119 1,325,026 (249,907)(13.5) Trade receivables 1,824,322 0 1,824,322(13.6) Other (including items <5% of total ordinary tax assets) 135,360 143,008 (7,648)

(99) Subtotal 20,559,018 20,226,118 332,900

(b) Statutory valuation allowance adjustment 0 0 0(c) Nonadmitted 8,600,802 5,924,121 2,676,681

(d) Admitted ordinary deferred tax assets (2a99 - 2b - 2c) 11,958,216 14,301,997 (2,343,781)

(e) Capital:

(1) Investments 0 0 0(2) Net capital loss carry-forward 0 0 0(3) Real estate 0 0 0(4) Other (including items <5% of total capital tax assets) 0 0 0

(99) Subtotal 0 0 0

(f) Statutory valuation allowance adjustment 0 0 0(g) Nonadmitted 0 0 0

(h) Admitted capital deferred tax assets (2e99 - 2f - 2g) 0 0 0

(i) Admitted deferred tax assets (2d + 2h) 11,958,216$ 14,301,997$ (2,343,781)$

3. Deferred Tax Liabilities:

(a) Ordinary

(1) Investments 0 0 0(2) Fixed assets 0 0 0(3) Deferred and uncollected premium 0 0 0(4) Policyholder reserves 0 0 0(5) Other (including items <5% of total ordinary tax assets) 2,698,575 3,217,093 (518,518)

(99) Subtotal 2,698,575 3,217,093 (518,518)

(b) Capital:

(1) Investments 0 0 0(2) Real estate 0 0 0(3) Other (including items <5% of total capital tax assets) 0 0 0

(99) Subtotal 0 0 0

(c) Deferred tax liabilities (3a99 + 3b99) 2,698,575 3,217,093 (518,518)

4. Net deferred tax assets/liabilities (2i - 3c) 9,259,641$ 11,084,904$ (1,825,263)$




The change in net deferred income taxes is comprised of the following:

(1) (2) (3)

(Col 1 - 2)6/30/2017 12/31/2016 Change

Total adjusted gross deferred tax assets 20,559,018$ 20,226,118$ 332,900$ Total deferred tax liabilities 2,698,575 3,217,093 (518,518)

Net deferred tax asset 17,860,443$ 17,009,025$ 851,418

Tax effect of change in unrealized gains (losses) 0Change in net deferred income tax, Page 5, Line 38 851,418$

5. Investment tax credits - not applicable.

6. Benefits of operating loss carryforwards - not applicable.

7. Adjustments for DTAs or DTLs for enacted changes in tax laws or rates - not applicable.

8. Adjustments to gross DTAs because of a change in circumstances that causes a change in judgment - not applicable.

d. Among the more significant book to tax adjustments were the following:

Effective6/30/2017 Tax Rate

Provision computed at statutory rate 6,928,501$ 35.0%

Other permanent adjustments, net 30,308 0.1%Tax effect of change in nonadmitted assets (148,437) -0.7%Prior year true-up 0.0%Work Opportunity Tax Credit 0.0%Change in statutory valuation allowance 0.0%Totals 6,810,372$ 34.4%

Effective6/30/2017 Tax Rate

Federal and foreign income taxes incurred 7,661,790$ 38.7%Current taxes on realized capital gains 0 0.0%

Total current taxes 7,661,790 38.7%Change in statutory valuation allowance 0 0.0%Change in net deferred income taxes (851,418) -4.3%Total statutory income taxes 6,810,372$ 34.4%

e. 1. Amount of net operating loss and tax credit carryforwards available to offset future taxable income:

None

2. The amount of federal income taxes incurred and available for recoupment in the event of future net losses is:

Year Amount

2017 7,661,790$ 2016 8,181,443$

3. Aggregate amount of deposits admitted under Section 6603 of the Internal Revenue Service Code:

None f. Consolidated Federal Income Tax Return

Ardent Health Partners, LLC (“Ardent”)'s directly wholly-owned domestic subsidiary companies entered into a Consolidated Federal Income Tax Agreement (the Agreement) effective as of January 1, 2003 and amended on August 5, 2015. The Agreement sets forth the method of allocation of federal income taxes for Ardent and its wholly-owned domestic subsidiaries, including insurance subsidiaries. The Agreement provides for immediate reimbursement to companies with net operating losses to the extent that their losses are used to reduce consolidated taxable income; while those companies with current taxable income as calculated under federal separate return provision, are liable for payments determined as if they had each filed a separate return. However, current credit is given for any foreign tax credit, operating loss or investment tax credit carryovers actually used in the current consolidated return.




The Company is included in the consolidated United States federal income tax return filed by its parent company, AHS Legacy Holdings, Inc. In accordance with a tax sharing arrangement, the provision for federal income tax liability is computed as if the Company were filing a separate federal income tax return. Benefits for net operating losses and tax credits are carried forward to offset future taxable income on a separate company basis, except to the extent that the tax sharing agreement provides for the recoupment of tax payments made in a prior year. Pursuant to the agreement, the Company has a limited enforceable right to recoup federal income tax paid in prior years in the event of future net losses. The Company has the right to receive a payment from Ardent equal to the lesser of: 1) the refund of federal income tax that the Company would have been entitled to receive from a carryback claim filed as a separate company or 2) the actual reduction in federal income tax liability that results from the loss being included in the consolidated federal income tax return of Ardent. The following entities are included in the abovementioned consolidated United States federal income tax return: AHS Legacy Holdings, Inc. AHS Legacy Acquisitions, Inc. AHS Legacy Operations, LLC

AHS Louisiana Holdings, Inc. AHS Louisiana Hospitals, Inc. AHS Management Company, Inc. AHS New Mexico Holdings, Inc. AHS Summit Hospital LLC LHS Services, Inc. Southwest Medical Associates, Inc. AHS Newco 16, Inc. AHS Newco 19, Inc. BSA Harrington Physicians, Inc. BSA Physician Holding Company LLC BSA Physicians Group, Inc. Lovelace Health System, Inc. BSA Amarillo Diagnostic Clinic, Inc.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the positive and negative evidence from all sources including net operating loss carryback opportunities, historical operating results, prudent and feasible tax planning strategies and projections of future taxable income. Subsequently recognized tax benefit or expense relating to a valuation allowance for deferred tax assets are reported as an income tax benefit or expense in the statement of operations. Management did not consider a valuation allowance necessary at June 30, 2017 or December 31, 2016.

g. Federal or Foreign Federal Income Tax Loss Contingencies The Company has no tax loss contingencies for which it is reasonably possible that the total liability will significantly increase within twelve months of the reporting date. As of June 30, 2017, management considers the Company's open tax years to include returns filed for 2004 through 2016.

10. Information Concerning Parent, Subsidiaries and Affiliates

With approval of the NM OSI, the Company declared and paid an extraordinary dividend of $20,000,000 to AHS Management Company, its parent, on March 30, 2017. There were no dividends declared or paid during 2016.

11. Debt No significant change

12. Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans No significant change 13. Capital and Surplus, Shareholders' Dividend Restrictions and Quasi-Reorganization

No significant change 14. Contingencies No significant change 15. Leases

No significant change

16. Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk

No significant change 17. Sale, Transfer and Servicing of Financial Assets and Extinguishments of Liabilities

a. No significant change

b. No significant change

c. No “wash sales”




18. Gain or Loss to the Reporting Entity from Uninsured A&H Plans and the Uninsured Portion of Partially Insured Plans No significant change 19. Direct Premium Written/Produced by Managing General Agents/Third Party Administrators No significant change 20. Fair Value Measurements

a. Statement of Statutory Accounting Principles No. 100, Fair Value Measurements, defines fair value, establishes a framework

for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date.

Statutory accounting principles establish a fair value hierarchy for inputs used in measuring fair value that gives the highest priority to observable inputs (Level 1) and the lowest priority to unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect management's assumptions about inputs market participants would use in pricing the asset or liability, developed on the basis of the best information available in the circumstances. The fair value hierarchy is categorized into three levels based on the inputs as follows:

Level 1: Fair values are based on unadjusted quoted prices in active markets for identical assets or liabilities and, as such, do not entail a significant degree of judgment.

Level 2: Fair values are based on quoted prices in markets that are not active or models in which all significant

inputs are observable either directly or indirectly.

Level 3: Fair values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

1. Fair value measurements at reporting dates

At June 30, 2017 and December 31, 2016, the Company had no assets or liabilities measured at fair value on a recurring basis.

2. Rollforward of Level 3 items The Company has no assets or liabilities measured at fair value in the Level 3 category.

3. Policy on transfers into and out of Level 3

At the end of each reporting period, the Company evaluates whether or not any event has occurred or circumstances have changed that cause an instrument to be transferred between fair value hierarchy levels. During 2017 and 2016, no transfers between levels were required.

4. Inputs and techniques used for Level 2 and Level 3 fair values The Company has no assets or liabilities measured at fair value in the Level 2 and Level 3 categories.

b. Other Fair Value Disclosures – not applicable.

c. Aggregate Fair Values of Financial Instruments Not

PracticableAggregate Admitted (Carrying

Type of Financial Instrument Fair Value Assets Level 1 Level 2 Level 3 Value)

June 30, 2017Cash, cash equivalents

and short-term investments 24,539,309$ 24,539,309 24,539,309 0 0 0 Bonds 300,000 300,059 0 300,000 0 0

Total Assets 24,839,309$ 24,839,368$ 24,539,309$ 300,000$ 0$ 0$

December 31, 2016Cash, cash equivalents

and short-term investments 26,370,192$ 26,370,192 26,370,192 0 0 0 Bonds 300,000 300,413 0 300,000 0 0

Total Assets 26,670,192$ 26,670,605$ 26,370,192$ 300,000$ 0$ 0$

Fair Value

d. Assets for which it is not practicable to estimate fair value – None.




21. Other Items

Sale of Health Plan Members: Effective May 31, 2014, the Company completed the sale of its remaining Health Plan members to Blue Cross Blue Shield of New Mexico, an affiliate of Health Care Service Corporation, and recognized a gain of approximately $201.2 million. The Health Plan continues to operate during a run-off period, and incur costs associated with managing the disposition of retained assets and liabilities and the termination of certain contracts that will not be assumed by the buyer. This Company continues to operate its hospital, physician clinics and other acute care operations. Divestiture of Real Estate: On July 31, 2015, the Company divested its total real estate holdings (land, land improvements, buildings, building improvements and fixed equipment) through a capital stock repurchase transaction with its parent, AHS New Mexico Holdings, Inc. The Company repurchased 12,938 shares of its common capital stock for a total price of approximately $141.7 million, which represented the statutory net book value of the total real estate divested. As a result of this 2015 transaction, the real estate, any related liabilities, and the related common capital stock and additional paid in and contributed surplus were eliminated from the Statement of Assets and Liabilities, Capital and Surplus, and no gain or loss was recognized. This transaction was approved by the OSI. As described in Note 1(c)(7), the IRB notes directly related to the divested real estate holdings were removed from the Company's accompanying Statement of Assets and Liabilities, Capital and Surplus as prescribed in NAIC SAP. The IRB notes payable which relate to equipment were retained on the Company's Statement of Assets and Liabilities, Capital and Surplus. Real Estate Operating Lease: In connection with the divestiture of the Company's real estate identified above, the Company entered into a lease agreement on August 4, 2015 with Ventas, Inc. ("Ventas"), a real estate investment trust, to lease back the real estate for use in continued operations. The lease payments are recorded as an operating expense in the Company's accompanying Statement of Revenue and Expenses in accordance with NAIC SAP. Ultimate Parent Acquisition: On August 4, 2015, the Company's ultimate parent, AHS Medical Holdings, LLC ("AHS"), was acquired by Ventas. Ventas retained all of the AHS real estate holdings and spun off the hospital operations of AHS to a separate entity, Ardent Health Partners, LLC ("AHP"), which is now the Company's ultimate parent. Concurrently, a controlled entity of Equity Group Investments ("EGI"), a private equity firm, acquired a majority stake in AHP, while Ventas retained a 9.9% interest, and AHS management retained a significant ownership stake.

22. Events Subsequent

In preparing the accompanying financial statements, management has evaluated subsequent events through August 15, 2017, which represents the date the financial statements were available to be issued.

23. Reinsurance

None

24. Retrospectively Rated Contracts & Contracts Subject to Re-determination No significant change 25. Change in Incurred Claims and Claim Adjustment Expenses

Reserves as of December 31, 2016 were approximately $65,000. As of June 30, 2017, approximately $22,000 has been paid for incurred claims and claim adjustment expenses attributable to insured events of prior years. Reserves remaining for prior years are now approximately ($18,000) as a result of re-estimation of unpaid claims and claim adjustment expenses. Therefore, there has been a favorable prior-year development of approximately $61,000 since December 31, 2016 to June 30, 2017. The decrease is generally the result of ongoing analysis of recent loss development trends. Original estimates are increased or decreased, as additional information becomes known regarding individual claims.

26. Intercompany Pooling Arrangements No significant change

27. Structured Settlements No significant change

28. Health Care Receivables No significant change 29. Participating Policies No significant change 30. Premium Deficiency Reserves None

31. Anticipated Salvage and Subrogation No significant change





GENERAL INTERROGATORIESPART 1 – COMMON INTERROGATORIES

GENERAL

1.1 Did the reporting entity experience any material transactions requiring the filing of Disclosure of Material Transactionswith the State of Domicile, as required by the Model Act? Yes [ X ] No [ ]

1.2 If yes, has the report been filed with the domiciliary state? Yes [ X ] No [ ]

2.1 Has any change been made during the year of this statement in the charter, by-laws, articles of incorporation, or deed ofsettlement of the reporting entity? Yes [ ] No [ X ]

2.2 If yes, date of change:

3.1 Is the reporting entity a member of an Insurance Holding Company System consisting of two or more affiliated persons,one or more of which is an insurer? Yes [ X ] No [ ]

If yes, complete Schedule Y, Parts 1, and 1A.

3.2 Have there been any substantial changes in the organizational chart since the prior quarter end? Yes [ ] No [ X ]

3.3 If the response to 3.2 is yes, provide a brief description of those changes.

4.1 Has the reporting entity been a party to a merger or consolidation during the period covered by this statement? Yes [ ] No [ X ]

4.2 If yes, provide the name of entity, NAIC Company Code, and state of domicile (use two letter state abbreviation) for any entity that has ceased to exist as a result of the merger or consolidation.

1 2 3Name of Entity NAIC Company Code State of Domicile

5. If the reporting entity is subject to a management agreement, including third-party administrator(s), managinggeneral agent(s), attorney-in-fact, or similar agreement, have there been any significant changes regarding theterms of the agreement or principals involved? Yes [ ] No [ X ] N/A [ ] If yes, attach an explanation.

6.1 State as of what date the latest financial examination of the reporting entity was made or is being made. 09/30/2015

6.2 State the as of date that the latest financial examination report became available from either the state of domicile or the reporting entity. This date should be the date of the examined balance sheet and not the date the report was completed or released. 09/30/2015

6.3 State as of what date the latest financial examination report became available to other states or the public from either the state of domicile or the reporting entity. This is the release date or completion date of the examination report and not the date of the examination (balance sheet date). 06/28/2016

6.4 By what department or departments?New Mexico Office of Superintendent of Insurance

6.5 Have all financial statement adjustments within the latest financial examination report been accounted for in asubsequent financial statement filed with Departments? Yes [ ] No [ ] N/A [ X ]

6.6 Have all of the recommendations within the latest financial examination report been complied with? Yes [ ] No [ ] N/A [ X ]

7.1 Has this reporting entity had any Certificates of Authority, licenses or registrations (including corporate registration,if applicable) suspended or revoked by any governmental entity during the reporting period? Yes [ ] No [ X ]

11

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GENERAL INTERROGATORIES7.2 If yes, give full information

8.1 Is the company a subsidiary of a bank holding company regulated by the Federal Reserve Board? Yes [ ] No [ X ]

8.2 If response to 8.1 is yes, please identify the name of the bank holding company.

8.3 Is the company affiliated with one or more banks, thrifts or securities firms? Yes [ ] No [ X ]

8.4 If response to 8.3 is yes, please provide below the names and location (city and state of the main office) of anyaffiliates regulated by a federal regulatory services agency [i.e. the Federal Reserve Board (FRB), the Office of theComptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Securities ExchangeCommission (SEC)] and identify the affiliate’s primary federal regulator.

1 2 3 4 5 6Affiliate Location Name (City, State) FRB OCC FDIC SEC

9.1 Are the senior officers (principal executive officer, principal financial officer, principal accounting officer or controller, orpersons performing similar functions) of the reporting entity subject to a code of ethics, which includes the followingstandards?(a) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;(b) Full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the reporting entity;(c) Compliance with applicable governmental laws, rules, and regulations;(d) The prompt internal reporting of violations to an appropriate person or persons identified in the code; and(e) Accountability for adherence to the code. Yes [ X ] No [ ]

9.11 If the response to 9.1 is No, please explain:

9.2 Has the code of ethics for senior managers been amended? Yes [ ] No [ X ]

9.21 If the response to 9.2 is Yes, provide information related to amendment(s).

9.3 Have any provisions of the code of ethics been waived for any of the specified officers? Yes [ ] No [ X ]

9.31 If the response to 9.3 is Yes, provide the nature of any waiver(s).

FINANCIAL

10.1 Does the reporting entity report any amounts due from parent, subsidiaries or affiliates on Page 2 of this statement? Yes [ X ] No [ ]

10.2 If yes, indicate any amounts receivable from parent included in the Page 2 amount: $ 4,632,484

INVESTMENT

11.1 Were any of the stocks, bonds, or other assets of the reporting entity loaned, placed under option agreement, orotherwise made available for use by another person? (Exclude securities under securities lending agreements.) Yes [ ] No [ X ]

11.1

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GENERAL INTERROGATORIES11.2 If yes, give full and complete information relating thereto:

12. Amount of real estate and mortgages held in other invested assets in Schedule BA: $

13. Amount of real estate and mortgages held in short-term investments: $

14.1 Does the reporting entity have any investments in parent, subsidiaries and affiliates? Yes [ X ] No [ ]

14.2 If yes, please complete the following: 1 2

Prior Year-End Current QuarterBook/Adjusted Book/AdjustedCarrying Value Carrying Value

14.21 Bonds $ $14.22 Preferred Stock $ $14.23 Common Stock $ 6,315,909 $ 6,427,26614.24 Short-Term Investments $ $14.25 Mortgage Loans on Real Estate $ $14.26 All Other $ $14.27 Total Investment in Parent, Subsidiaries and Affiliates

(Subtotal Lines 14.21 to 14.26) $ 6,315,909 $ 6,427,26614.28 Total Investment in Parent included in Lines 14.21 to

14.26 above $ $

15.1 Has the reporting entity entered into any hedging transactions reported on Schedule DB? Yes [ ] No [ X ]

15.2 If yes, has a comprehensive description of the hedging program been made available to the domiciliary state? Yes [ ] No [ X ]If no, attach a description with this statement.

16. For the reporting entity's security lending program, state the amount of the following as current statement date:

16.1 Total fair value of reinvested collateral assets reported on Schedule DL, Parts 1 and 2 $16.2 Total book adjusted/carrying value of reinvested collateral assets reported on Schedule DL, Parts 1 and 2 $16.3 Total payable for securities lending reported on the liability page $

17. Excluding items in Schedule E - Part 3 - Special Deposits, real estate, mortage loans and investments heldphysically in the reporting entity’s offices, vaults or safety deposit boxes, were all stocks, bonds and other securities,owned throughout the current year held pursuant to a custodial agreement with a qualified bank or trust company inaccordance with Section 1, III - General Examination Considerations, F. Outsourcing of Critical Functions,Custodial or Safekeeping Agreements of the NAIC Financial Condition Examiners Handbook? Yes [ X ] No [ ]

17.1 For all agreements that comply with the requirements of the NAIC Financial Condition Examiners Handbook, complete the following:

1 2Name of Custodian(s) Custodian Address

Century Bank 100 S. Federal PlaceSanta Fe, NM 87501

17.2 For all agreements that do not comply with the requirements of the NAIC Financial Condition Examiners Handbook, provide the name, location and a complete explanation:

1 2 3Name(s) Location(s) Complete Explanation(s)

17.3 Have there been any changes, including name changes, in the custodian(s) identified in 17.1 during the current quarter? Yes [ ] No [ X ]

11.2

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GENERAL INTERROGATORIES17.4 If yes, give full and complete information relating thereto:

1 2 3 4Old Custodian New Custodian Date of Change Reason

17.5 Investment management - Identify all investment advisors, investment managers, broker/dealers. Including individuals thathave the authority to make investments decisions on behalf of the reporting entity. For assets that are managed internallyby employees of the reporting entity, note as such. ["..that have acess to the investment accounts";"..handle securities"]

1 2Name of Firm or Individual Affiliation

17.5097 For those firms/individuals listed in the table for Question 17.5, do any firms/individuals unaffiliated with the reporting entity (i.e., designated with a “U”) manage more than 10% of the reporting entity’s assets? Yes [ ] No [ X ]

17.5098 For firms/individuals unaffiliated with the reporting entity (i.e., designated with a “U”) listed in the table for Question 17.5,the total assets under management aggregate to more than 50% of the reporting entity’s assets? Yes [ ] No [ X ]

17.6 For those firms or individuals listed in the table for 17.5 with an affiliation code of “A” (affiliated) or “U” (unaffiliated), provide theinformation for the table below.

1 2 3 4 5Central Registration Name of Firm Legal Entity Investment ManagementDepository Number or Individual Identifier (LEI) Registered With Agreement (IMA) Filed

18.1 Have all the filing requirements of the Purposes and Procedures Manual of the NAIC Investment Analysis Officebeen followed? Yes [ X ] No [ ]

18.2 If no, list exceptions:

11.3

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



GENERAL INTERROGATORIES

PART 2 - HEALTH

1. Operating Percentages:1.1 A&H loss percent %1.2 A&H cost containment percent %1.3 A&H expense percent excluding cost containment expenses %

2.1 Do you act as a custodian for health savings accounts? Yes [ ] No [ X ]

2.2 If yes, please provide the amount of custodial funds held as of the reporting date. $

2.3 Do you act as an administrator for health savings accounts? Yes [ ] No [ X ]

2.4 If yes, please provide the balance of the funds administered as of the reporting date. $

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .



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SUPPLEMENTAL EXHIBITS AND SCHEDULES INTERROGATORIES

The following supplemental reports are required to be filed as part of your statement filing. However, in the event that your company does not transact the type ofbusiness for which the special report must be filed, your response of NO to the specific interrogatory will be accepted in lieu of filing a “NONE” report and a bar codewill be printed below. If the supplement is required of your company but is not being filed for whatever reason enter SEE EXPLANATION and provide anexplanation following the interrogatory questions.

Response

1. Will the Medicare Part D Coverage Supplement be filed with the state of domicile and the NAIC with this statement? NO

Explanation:

Question 1: Not applicable.

Bar Code:

95808201736500102

17

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OVERFLOW PAGE FOR WRITE-INS

Page 3 - Continuation

LIABILITIES, CAPITAL AND SURPLUSCurrent Year Prior Year

1 2 3 4Covered Uncovered Total Total

WRITE-INS AGGREGATED AT LINE 23 FOR OTHER LIABILITIES2304. Deferred revenue 61,763 61,763 68,1742305. Other liabilities 8,4822397. Totals (Lines 2304 through 2396) (Page 3, Line 23) 61,763 61,763 76,656

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SCHEDULE A - VERIFICATIONReal Estate

1 2Prior Year

Year To Date Ended December 31

1. Book/adjusted carrying value, December 31 of prior year2. Cost of acquired:

2.1 Actual cost at time of acquisition2.2 Additional investment made after acquisition

3. Current year change in encumbrances4. Total gain (loss) on disposals5. Deduct amounts received on disposals6. Total foreign exchange change in book/adjusted carrying value7. Deduct current year’s other than temporary impairment recognized8. Deduct current year’s depreciation9. Book/adjusted carrying value at the end of current period (Lines 1 + 2 + 3 + 4 - 5 + 6 - 7 - 8)

10. Deduct total nonadmitted amounts11. Statement value at end of current period (Line 9 minus Line 10)

SCHEDULE B - VERIFICATIONMortgage Loans

1 2Prior Year


1. Book value/recorded investment excluding accrued interest, December 31 of prior year2. Cost of acquired:

2.1 Actual cost at time of acquisition2.2 Additional investment made after acquisition

3. Capitalized deferred interest and other4. Accrual of discount5. Unrealized valuation increase (decrease)6. Total gain (loss) on disposals7. Deduct amounts received on disposals8. Deduct amortization of premium and mortgage interest points and commitment fees9. Total foreign exchange change in book value/recorded investment excluding accrued interest

10. Deduct current year’s other than temporary impairment recognized11. Book value/recorded investment excluding accrued interest at end of current period (Lines 1 + 2 + 3 + 4 + 5 + 6 - 7 - 8 + 9 - 10)12. Total valuation allowance13. Subtotal (Line 11 plus Line 12)14. Deduct total nonadmitted amounts15. Statement value at end of current period (Line 13 minus Line 14)

SCHEDULE BA - VERIFICATIONOther Long-Term Invested Assets

1 2Prior Year


1. Book/adjusted carrying value, December 31 of prior year 4,300,0002. Cost of acquired:

2.1 Actual cost at time of acquisition 4,300,0002.2 Additional investment made after acquisition

3. Capitalized deferred interest and other4. Accrual of discount5. Unrealized valuation increase (decrease) 502,1086. Total gain (loss) on disposals7. Deduct amounts received on disposals8. Deduct amortization of premium and depreciation9. Total foreign exchange change in book/adjusted carrying value

10. Deduct current year’s other than temporary impairment recognized11. Book/adjusted carrying value at end of current period (Lines 1 + 2 + 3 + 4 + 5 + 6 - 7 - 8 + 9 - 10) 4,802,108 4,300,00012. Deduct total nonadmitted amounts13. Statement value at end of current period (Line 11 minus Line 12) 4,802,108 4,300,000

SCHEDULE D - VERIFICATIONBonds and Stocks

1 2Prior Year


1. Book/adjusted carrying value of bonds and stocks, December 31 of prior year 6,616,322 6,097,6512. Cost of bonds and stocks acquired 300,7093. Accrual of discount4. Unrealized valuation increase (decrease) 111,357 218,2585. Total gain (loss) on disposals6. Deduct consideration for bonds and stocks disposed of7. Deduct amortization of premium 354 2968. Total foreign exchange change in book/adjusted carrying value9. Deduct current year's other than temporary impairment recognized

10. Book/adjusted carrying value at end of current period (Lines 1 + 2 + 3 + 4 + 5 - 6 - 7 + 8 - 9) 6,727,325 6,616,32211. Deduct total nonadmitted amounts12. Statement value at end of current period (Line 10 minus Line 11) 6,727,325 6,616,322

NONE

NONE

SI01

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SCHEDULE DA - PART 1Short-Term Investments

1 2 3 4 5

Interest Paid for AccruedBook/Adjusted Par Actual Collected InterestCarrying Value Value Cost Year To Date Year To Date

9199999 X X X

SCHEDULE DA - VERIFICATIONShort-Term Investments

1 2

Prior YearYear To Date Ended December 31

1. Book/adjusted carrying value, December 31 of prior year 531,9162. Cost of short-term investments acquired 531,0633. Accrual of discount 1,0214. Unrealized valuation increase (decrease)5. Total gain (loss) on disposals6. Deduct consideration received on disposals 1,064,0007. Deduct amortization of premium8. Total foreign exchange change in book/adjusted carrying value9. Deduct current year's other than temporary impairment recognized

10. Book/adjusted carrying value at end of current period (Lines 1 + 2 + 3 + 4 + 5 - 6 - 7 + 8 - 9)11. Deduct total nonadmitted amounts12. Statement value at end of current period (Line 10 minus Line 11)

NONE

SI03

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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NONE Schedule DB - Part A and B Verification

NONE Schedule DB - Part C - Section 1

NONE Schedule DB - Part C - Section 2

NONE Schedule DB - Verification

NONE Schedule E Verification

NONE Schedule A - Part 2 and 3

NONE Schedule B - Part 2 and 3

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NONE Schedule D - Part 3

NONE Schedule D - Part 4

NONE Schedule DB - Part A - Section 1

NONE Schedule DB - Part B - Section 1

NONE Schedule DB - Part D - Section 1

NONE Schedule DB - Part D - Section 2

NONE Schedule DL - Part 1

NONE Schedule DL - Part 2

E04-E11See independent accountant's compilation report.


SCHEDULE E - PART 1 - CASHMonth End Depository Balances

1 2 3 4 5 Book Balance at End of Each 9Amount of Amount of Month During Current Quarter

Interest Interest 6 7 8Rate Received Accrued at

of During Current CurrentDepository Code Interest Quarter Statement Date First Month Second Month Third Month *

Open DepositoriesWells Fargo Albuquerque, NM 27,864,801 27,851,760 29,059,583Wells Fargo Albuquerque, NM (5,966,266) (5,383,913) (4,588,788)Wells Fargo Albuquerque, NM 295,513 127,819 73,600

3. . . . . . . . . 0199998 Deposits in ( ) depositories that do not exceed the allowable limit in any one depository (see Instructions) - Open Depositories X X X X X X (34,601) (485) (5,086) X X X 0199999 Total - Open Depositories X X X X X X 22,159,447 22,595,181 24,539,309 X X X

Suspended Depositories

0. . . . . . . . . 0299998 Deposits in ( ) depositories that do not exceed the allowable limit in any one depository (see Instructions) - Suspended Depositories X X X X X X X X X 0299999 Total Suspended Depositories X X X X X X X X X

0399999 Total Cash on Deposit X X X X X X 22,159,447 22,595,181 24,539,309 X X X

0499999 Cash in Company's Office X X X X X X X X X X X X X X X

0599999 Total X X X X X X 22,159,447 22,595,181 24,539,309 X X X

E12

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FAULKNER MACKIE & COCHRAN, P.C.

CERTIFIED PUBLIC ACCOUNTANTS One American Center Telephone: (615) 292-3011 3100 West End Avenue, Suite 700 Fax: (615) 269-9047 Nashville, Tennessee 37203-1372 Website: www.fmccpa.com

MEMBER: AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS; TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

INDEPENDENT ACCOUNTANT’S COMPILATION REPORT To the Board of Directors Lovelace Health System, Inc. Albuquerque, New Mexico Management is responsible for the accompanying prescribed "Quarterly Statement" reporting form of Lovelace Health System, Inc., which includes the statutory basis statements of assets, liabilities, capital and surplus as of June 30, 2017 and December 31, 2016, and the related statutory basis statements of revenue and expenses and cash flow for the six months ended June 30, 2017 and 2016, and the year ended December 31, 2016, and the related statutory basis notes to the financial statements, general interrogatories, exhibits, schedules, and other pages. We have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the American Institute of Certified Public Accountants. We did not audit or review the financial statements included in the accompanying prescribed form, nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion or a conclusion, nor do we provide any form of assurance on the financial statements included in the accompanying prescribed form. As discussed in Note 21, the Company sold all of its remaining Health Plan membership effective May 31, 2014, and continues to operate during a run-off period. In addition, the Company continues to operate its hospital, physician clinics and other acute care operations. Other Matters The financial statements and related information included in the accompanying prescribed form are intended to comply with the financial reporting provisions of the New Mexico Office of Superintendent of Insurance, and are not intended to be a presentation in accordance with accounting principles generally accepted in the United States of America. This report is intended solely for the information and use of the Board of Directors and management of Lovelace Health System, Inc., and the state of New Mexico Office of Superintendent of Insurance, and is not intended to be, and should not be, used by anyone other than these specified parties.

August 15, 2017

new mexico...3. mortgage loans on real estate: 3.1 first liens 3.2 other than first liens 4. real...

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